At a Senate Agriculture Committee hearing today, U.S. Senator Deb Fischer (R-Neb.) questioned Dr. Jayson Luck, Agriculture Economics Professor at Purdue University, Jennifer Houston, president of the National Cattlemen’s Beef Association, and Shane Eaton, a member of the United States Cattlemen’s Association, about the impact of last month’s fire at a Tyson beef plant in Holcomb, Kansas, on the cattle markets. The senator asked specifically about the negative impact on suppliers due to low cattle prices and high packer margins following the fire.
A partial transcript of today’s hearing below:
Senator Fischer: Thank you Mr. Chairman. I thank all of you for being here today. I’m a livestock producer as well. My family has a cattle ranch in the Nebraska Sandhills, and we have a cow-calf business there.
Dr. Lusk, many of our witnesses have touched on the Holcomb fire and its impact on cattle markets. And things, as you know, are rough right now in the ag economy. In my area we had a drought for eight years, and now we have plenty of rain, but obviously cattle prices are down the last six years. We have trade wars, we have rising input costs, we see extreme weather all across the state of Nebraska, so this list goes on and on and on.
To add to this, fed and feeder cattle prices are down and beef prices are up, and the packer margin is high. Nobody’s gonna argue with that, I would doubt. In your testimony you say that this can be expected, and that with a reduction in packing capacity due to the fire, cattle demand is reduced and cattle prices suffer, but the demand for beef has stayed the same. Wholesale beef prices have increased.
So using your modeling that you have, when this facility comes back online, and packing capacity is going to be restored, prices should come back up, correct?
Dr. Jayson Lusk: Certainly over the long run, I think that extra margin that you referred to is the incentive needed to induce more packing capacity to come online. Whether it’s additional slaughter on weekends, conversion of plants that are currently processing, say, cows, transitioning to steers and heifers. Those things cost extra money, and those heightened margins are what will induce the industry eventually to try to add back some of that capacity.
So the question is, how long does that take – how quickly will it occur? I don’t know the answer to that, but I think the incentives in the system are there to eventually add back to the capacity over time. And some of that will probably be in response – we talked about the cattle prices – and a lot of that corresponds to inventory, and changing inventory over time, and the cattle cycle, and to the extent that there are more cattle coming online, that will also probably over time produce an inducement to add some more packing capacity.
Senator Fischer: Well certainly we hope it is sooner rather than later, because if those prices do not come up, I think we can begin to explore some of the other factors that may be at play in this arena.
For time’s sake though, I’m going to move to Mrs. Houston – happy to have you here today. Based on a recent Farm Bureau analysis, I see that packer margins have significantly increased since the fire. We know the margin is the difference between the price they buy cattle at, and the price they sell the wholesale beef at. I think it’s safe to say that at least right now, packers are doing alright, they’re doing okay. And suppliers are getting hit, and getting hit hard.
I’m looking at last week’s close – fed cattle, down; feeder cattle, down; wholesale prices, up. So I just want to be clear on this – who is being hurt right now, and are you hearing from these folks?
Mrs. Jennifer Houston: Certainly we’re hearing from our members. I think at this point probably the feed lot, the feeders, are getting hurt the most. It is trickling down obviously to the cow-calf producers too. We do realize it is part of the cycle as Dr. Lusk said, and numbers. Luckily though, a lot of the capacity was been able to be taken up, whether it was by more Saturday kill, so we could even be in a worse situation. It’s certainly not a good one, but there was a long time when packers didn’t have a lot of margin and other parts were making a lot more money, so we hope things will stabilize pretty soon, certainly the optics to our members are bad. Especially the ones that are feeling hurt because of floods, fires, all these other things. This is just one extra thing that we certainly didn’t need in the beef industry.
Senator Fischer: Right, and we hope NCBA continues to advocate for us, it’s important.